Letting regular HTML anchor tags through without XSS risk is a problem only barely worth solving.

I'm not a big fan of the stupid formatting bars (that take forever to load) that certain forum software (hack, php, koff, BB) use, but I'm not necessarily the average population. Between Microsoft Office, Xanga, Livejournal, the afore-implied phpBB, people are used to this sort of thing, so maybe something SIMPLE along those lines (especially for site-internal links, easy to fill in because of your extant easy-to-read URLs), and maybe adopting a subset of phpBB/wikimedia/etc's brackets in place of angle braces might not be a bad plan.

1. URL recognition gives up on some characters that are (de facto?) not stop characters. Cf, RBoulanger's post in http://www.snooth.com/talk/topic/fo... (the omission of the | and everything after it there doesn't actually matter in this case, but depending on what the site's doing with the |, it could). I actually don't know whether the relevant RFCs permit | (or various other unusual characters) in the http URI or not, and the curmudgeon in me thinks that if they don't they shouldn't be accepted, but this may be a place where accepting the reality of use is less painful to your users than sticking to the Rules. (For example, _ isn't legal as a character for DNS zones, which Microsoft decided to exploit in their Active Directory design... and now DNS is flooded with zones including underscores, which Unix resolver libraries stubbornly refuse to turn into an IP address. And, you know, I'd actually rather my web browser just loaded my_friends_page.example.dom than be the jerk who points out they're in violation of the RFC.)

2. Line-wrapping is a drag. This isn't exclusive to URLs, since I can just type a lot of characters without white space and cause the same thing, but it's the place where it's likely to come up most frequently in forums. I've definitely seen implementations that elide URLs longer than N characters, which does make a certain amount of sense (you can mouse over the HREF to see the expansion), but deciding on N given variable screen real estate and font size makes it harder. I'm not convinced this is ever worth fixing, and it certainly shouldn't be high on anybody's list, but it is a bit of a visual blemish when text sticks out of the IFRAME it's supposed to live in, regardless of whether it runs over images or they run over it.

Or the one I originally linked to (http://www.snooth.com/talk/topic/fo...), where the URL fits within the screen but the extra characters that you weren't (oh, but are now!) making into a URL don't when you have the font size cranked up to the biggest A.